CFIUS reviews are confidential and neither the outcome nor the reasoning is released to the public, so all discussion of recent cases is limited to information that has been identified in judicial proceedings or publicly discussed by parties or media accounts.
In 2012, President Obama ordered Ralls Corporation, a Delaware entity owned by Chinese nationals associated with the construction and heavy machinery company Sany Group, to divest its interest in four wind farm project companies in Oregon because of the proximity of the wind farms to US Navy-restricted airspace. Ralls did not notify CFIUS when it initially entered into the US$6 million deal to acquire the four companies in March 2012. In June 2012, after learning of the acquisition, CFIUS informed Ralls that the Department of Defense would initiate a review of the transaction if Ralls did not file a voluntary notice with CFIUS. CFIUS reviewed the transaction and issued orders limiting Ralls’ use of, access and ability to sell, the wind farm properties. On 28 September 2012, President Obama issued an order requiring Ralls to divest all of its interests in the companies.
Two weeks before the president’s order, Ralls brought a suit against CFIUS, challenging both the process by which the Committee reaches its recommendations and its authority to issue orders prohibiting implementation of a transaction before a decision by the president. Under CFIUS’s statute, neither the national security findings of the president nor a decision by the president to block a covered transaction are reviewable by federal courts. The government further argued that the entire CFIUS process was exempt from judicial review. In the Ralls suit, however, the federal appeals court ruled that this prohibition does not extend to constitutional claims challenging the CFIUS review process leading to the presidential action. Additionally, the court ruled that the CFIUS review process violated Ralls’ constitutional due process rights because CFIUS failed to provide access to the unclassified material on which it based its decision and to offer the parties a chance to rebut that material, and remanded to the trial court, which also permitted Ralls to challenge the CFIUS orders made prior to the president’s decision.
In November 2014, CFIUS produced the unclassified materials from its review. Ralls ultimately settled the case and divested the assets. Thus, while Ralls won on paper, it derived little benefit from the victory. The case remains interesting, though, for the court’s rejection of the government’s blanket assertion of immunity and could lead to more interesting challenges on issues such as jurisdiction.
The Ralls case also highlights the importance of proximity to sensitive sites as a factor in CFIUS’s analysis. Although the wind farms themselves did not present a national security threat in the Ralls case, their proximity to US Navy-restricted airspace raised concerns with the Department of Defense. Ralls previewed the expansion of CFIUS’s jurisdiction in FIRRMA to include real estate transactions involving or near sensitive sites.
Lattice Semiconductor Corporation
On 13 September 2017, President Trump blocked the US$1.3 billion proposed acquisition of US chip manufacturer Lattice Semiconductor Corporation by Canyon Bridge Capital Partners, a US-headquartered private equity firm. The Canyon Bridge investment group included a company with ties to Chinese state-owned entities. The Trump administration’s statement announcing the decision specifically referenced Chinese government involvement in the transaction, among other national security concerns, as a reason for blocking the transaction.
Canyon Bridge and Lattice filed a formal joint notice with CFIUS in late December 2016. Over the next eight months, the proposed transaction went through three 75-day CFIUS review cycles. Finally, Lattice disclosed that CFIUS was poised to recommend that President Trump block the transaction. Lattice and Canyon Bridge opted to have President Trump review the proposed acquisition directly instead of abandoning it as is typically the case when CFIUS recommends that the president block a transaction.
Despite the parties’ numerous offers to undertake mitigation, on 13 September 2017, President Trump blocked the proposed transaction. Concurrent statements on the decision by President Trump and Treasury Secretary Steven Mnuchin cited four national security justifications for the decision: the risk posed by the potential transfer of intellectual property to a foreign party, the Chinese government’s role in the proposed acquisition, the importance of the semiconductor supply chain to the US government and US government use of Lattice products.
The Lattice decision was somewhat counter-intuitive because of the extended time CFIUS took to reach a decision and the seemingly low-tech nature of Lattice’s products, but it demonstrated the importance of supply chain integrity (the reliability of even low-tech suppliers) to CFIUS.
On 12 March 2018, President Trump blocked the proposed US$117 billion hostile acquisition of Qualcomm Incorporated, a US chipmaker, by Broadcom Limited, a Singapore-incorporated company headquartered in the United States. Although Broadcom is based in Singapore, it is not obviously a foreign acquirer under CFIUS’s regulations because its primary stock exchange and principal place of business are within the United States. CFIUS moved with unprecedented aggressiveness to block the deal before it was signed and before Broadcom reincorporated in the United States. President Trump blocked the deal by executive order days before Qualcomm shareholders were set to replace a majority of directors with persons nominated by Broadcom.
CFIUS’s reasoning supporting the conclusion that the acquisition would impair US technological competitiveness was also unprecedented. The parties released a letter from the Treasury stating that CFIUS was concerned that acquisition by Broadcom would weaken Qualcomm’s research and development given the former’s ‘private equity style approach’ and reputation for cost-cutting. CFIUS’s stated justification was that this would reduce Qualcomm’s long-term competitiveness and thus leave an opening for China to take the lead in 5G technology standards. Surprisingly, other than a passing reference to Broadcom’s relationship with unnamed foreign third parties, the Treasury letter did not set out any traditional national security concerns. Instead, the Committee appears to have focused on whether or not the proposed business plan for an entity would be successful. This move and the rationale behind it marks new territory for an entity not historically concerned with industrial policy.
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